Tax Tips: Unemployment & Disability Contributions

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You can deduct mandatory employee contributions to a state unemployment and/or disability fund that are withheld from your paycheck on Schedule A if you itemize your deductions.

In California, New Jersey, New York, Rhode Island, Washington and West Virginia, employers withhold contributions to a state unemployment or disability fund, or both, from employee paychecks. In New Jersey, for example, employers withheld .425% of employee wages, up to a maximum of $122.82, for unemployment and .5% of wages, up to a maximum of $144.50, for disability in 2009.  If New Jersey employees have the maximum withheld, they can deduct $267.32 as a tax on Schedule A.

The amount of unemployment and/or disability contributions withheld may or may not be reported in Box 14 of your W-2. If the amount is not on the W-2, you should be able to get the number from your final pay stub for the year.

These taxes are considered state income taxes for the purpose of electing to deduct state and local sales taxes paid. If you elect to claim a deduction on Schedule A for state and local sales taxes paid, instead of state and local income taxes paid, you cannot also deduct state unemployment and disability taxes.

New Jersey tax pro Robert D. Flach has been preparing 1040s for individuals since 1972.

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